Eco Investor May 2015

Pre-Profit Securities

Cardia Bioplastics Now SECOS Group

The merger of Cardia Bioplastics with Stellar Films to form SECOS Group is a positive development for environmental investors. SECOS is double the size of what it was as Cardia and it remains the only ASX-listed stock that is focused on sustainable packaging.

Cardia Bioplastics' shareholders overwhelmingly approved the company's changes including the consolidation of its shares, the change of name to SECOS Group Ltd (derived from Sustainable Eco Solutions), and the issue of shares to sophisticated and professional investors.

Stephen Walters is the new managing director and Trevor Haines the new chief financial officer. Steven Bendel has retired as a non-executive director.

Together with the takeover of Stellar Films last month, SECOS is now a substantially larger company with a different capital structure. The one for 100 consolidation of capital means that SECOS now has 94,610,903 shares on issue and 2,212,855 options that expire on 30 June 2015 and are exercisable at $1.50 each.

As foreshadowed, SECOS is now raising $3.5 million at 14 cents per share. It raised $1.1 million through a placement to professional and sophisticated investors and is raising up to another $2.4 million through a one for six rights issue.

Chairman, Richard Tegoni said $1.5 million of the proceeds is for working capital to purchase raw materials, $1 million is for operating expenses, $0.7 million is for capital expenditure on the expansion of film extrusion and bag making, and $0.3 million for technology development and patent costs.

The merged group has proprietary manufacturing processes for its bioplastic resin, cast films and finished products. It has manufacturing plants in Deer Park in Melbourne, Port Klang in Malaysia and Nanjing in China.

Its main products are high quality cast films, bioplastic resins and finished products derived from renewable and biodegradeable resources. These include certified compostable and Biohybrid films and bags, nappies, toilet paper, wipes, and feminine hygiene pads. Annual production capacity is circa 7,200 tonnes of bioplastics resins and 17,000 tonnes of film and finished products.

In Malaysia it has 50.8 per cent of the Akronn joint venture for silicone coated products.

The combined December half revenue for SECOS was $12.9 million, but it did not achieve profitability. With such a major restructure now in the bag, the job ahead is to combine the two businesses, grow revenue, and achieve profitability.

Mr Tegoni is hopeful. He told shareholders that management has begun working with key customers and early signs suggest that the new Biohybrid cast films produced from Cardia's renewable resource based resins on Stellar's large-scale cast film production lines will be well received in the market place.

"This is the first time that Cardia has been able to produce a product that achieves both the environmental profile at an attractive price point while also offering very high performance," he said. "The group's new environmentally preferred high performance film has the potential to change packaging standards worldwide and was the catalyst for the proposed merger in November last year."

The merger means the business can manufacture its own proprietary and environmentally preferred resins and supply these to the group's business units that manufacture large quantities of plastic films. This will improve margins and offer customers a superior film for use in packaging. Having an environmental edge will give the high performance film a competitive advantage over traditional film products of similar quality and price, said Mr Tegoni.

Production will be ramped up at Stellar's under-utilized Deer Park cast film plant, which is capable of producing as much hygiene film in four weeks as Cardia's hygiene film extrusion lines could produce in one year. The capital raising will assist this. (ASX: SES)





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